The Trump administration’s push for outcome-based contracting has gained further momentum.
President Donald Trump’s latest executive order on acquisition, issued yesterday, requires the use of firm-fixed-price contracts unless agency leaders provide a compelling justification for alternative contract types, such as labor-hour or cost-reimbursement agreements.
“President Trump understands that federal contracting must be overhauled to reward performance rather than inflate costs, ensuring taxpayer funds are safeguarded,” the Office of Management and Budget stated in a fact sheet accompanying the executive order. “For too long, federal procurement has accepted unpredictable expenses, excessive overhead, and weak performance incentives that routinely lead to overspending. Many government contracts follow a cost-reimbursement model that guarantees repayment for all incurred costs plus a profit margin, offering little motivation to control spending.”
The executive order defines fixed-price contracts in accordance with Part 16 of the Federal Acquisition Regulations: “A firm-fixed-price contract establishes a price that cannot be adjusted based on the contractor’s actual costs during performance. This contract type places maximum risk and full accountability on the contractor for all expenses and the resulting profit or loss.”
Acquisition specialists note that the order reinforces several other initiatives the administration has advanced over the past 15 months to promote outcome-based contracting. From the General Services Administration’s review of consulting contracts to the overhaul of the Federal Acquisition Regulations, the executive order on purchasing commercial services, and efforts to limit vendor profits and cap executive compensation, the administration has been reshaping expectations for federal contracts and contractors.
“I believe the executive order aims to drive agencies to focus on outcomes from a requirements standpoint. It discourages agencies from concentrating on staffing levels and hours,” said Greg Giddens, former principal executive director for the Office of Acquisition, Logistics and Construction at the Department of Veterans Affairs, now a partner at Potomac Ridge Consulting. “It’s a commendable goal, but challenging to implement. Agencies must invest significant effort in clearly defining their objectives in solicitations. We’ve observed a gradual shift from statements of work to statements of objectives or performance work statements. The emphasis should be on what the agency aims to accomplish.”
The administration has argued that agencies often claim to use performance-based contracting in name only, while their actual requirements remain overly prescriptive.
“The U.S. government must embrace best business practices to protect taxpayer funds, hold contractors accountable, and deliver measurable returns on investment,” the fact sheet stated. “Private-sector contracts frequently emphasize performance by setting a fixed price for a clearly defined outcome and linking contractor payments to performance-based metrics, rewarding exceptional work and penalizing inadequate performance — far too often, federal contracts fail to do so.”
The executive order outlines several changes for agencies, including the ongoing requirement to justify non-fixed-price contracts and obtain approval from contracting officials and other agency leaders. The White House has established dollar thresholds requiring agency head approval for such justifications:
- Department of Defense: $100 million or above
- NASA: $35 million or above
- Department of Homeland Security: $25 million or above
- All other agencies: $10 million or above
Additionally, within 90 days, agencies must review and attempt to modify, restructure, or renegotiate their 10 largest non-fixed-price contracts by value, including those entered into on behalf of another agency, to transition to fixed-price agreements with performance-based incentives.
“Each agency head must report semi-annually to the director of the Office of Management and Budget (OMB) on the number, value, and written justifications for any non-fixed-price contracts approved,” the executive order stated. “Agency heads must submit the first report within 90 days of this order. As part of that initial report, agency heads should identify additional opportunities, beyond the contracts identified in the top-10 review, to convert current non-fixed-price contracts to fixed-price arrangements.”
A long-standing preference
OMB will release new guidance to implement the executive order by early June, and the Office of Federal Procurement Policy will amend the FAR as needed, working with the Federal Acquisition Institute and the Defense Acquisition University to develop training programs.
Giddens and other acquisition experts say the executive order doesn’t necessarily introduce new requirements for agencies but rather amplifies existing processes and expectations more forcefully.
Chris Hamm, a former GSA acquisition executive who previously led the FedSIM organization, noted that anyone experienced in acquisition understands that fixed-price contracts are preferable and other contract types are less desirable.
“Every non-fixed-price contract already requires a determination and findings or a justification and approval explaining why labor hours, time and materials (T&M), or cost-reimbursement contracts are being used. At some agencies, these justifications are quite brief, while at others they are far more detailed. The head of contracting or the acquisition office had to approve those justifications,” said Hamm, now CEO of FIN Acquisitions. “This has been standard practice for over 25 years. However, until this executive order, that decision was largely confined to the acquisition activity and typically didn’t need to be escalated to the senior procurement executive or the agency head.”
The Government Accountability Office found in its analysis of fiscal year 2024 federal acquisition trends that agencies are allocating more funds through fixed-price contracts than any other contract type.
Although the effort to promote fixed-price contracts is commendable, experts argue the executive order is introducing additional layers of bureaucracy and oversight — at a time when the administration has been focused on cutting red tape and making the acquisition process more streamlined.
Hamm noted that the newly introduced approval steps could extend acquisition timelines by weeks or months, making the entire process more cumbersome.
“There will probably be someone in the middle between the agency head and the contracting officer, so if you present them with a justification for not choosing a fixed-price contract, they will dig deeper and press for further explanation,” he said. “If you switch to fixed-price, you’ll have to revise all the solicitation documents, which could tack on a number of days or even weeks. And if you still disagree, you can’t simply have a conversation and say, ‘I genuinely believe it should be fixed-price.’ You’ll need to back up your position with evidence from industry, which could come in the form of new outside information gathered through a formal request for information or documented calls with industry that get sent back up the chain.”
The downsides of applying a single approach to every situation
Tracy Marcinowski, who previously served as the assistant commissioner for acquisitions for the Public Buildings Service at the GSA, pointed out that many agencies already have approval processes in place for using contracts other than fixed-price. She stressed that agencies must ensure these processes don’t slow down their procurements by setting up an efficient approval mechanism that can wrap up quickly, though introducing a new approval step inevitably takes some time.
“This executive order will encourage agencies to sharpen their critical thinking and examine whether they are being responsible stewards of taxpayer money. Acquisition offices need to serve as business advisors to program offices and help identify the best contracting options available,” said Marcinowski, who currently serves as managing partner at Strategic Acquisitions Solutions. “In certain cases, cost-type contracts will be the right choice. In others, firm fixed-price is the appropriate path. But the starting assumption should be firm fixed-price, and as the facts of the situation come into focus, you should then evaluate whether a cost-type contract is warranted. The executive order also carved out exceptions for emergencies, since agencies rely heavily on time-and-materials and labor-hour contracts during emergency situations.”
Both Marcinowski and Hamm concurred that agencies turn to time-and-materials, labor-hour, or cost-reimbursement contracts for legitimate reasons.
Marcinowski explained that the choice of contract type is often shaped by the agency’s specific needs.
“Agencies need to clearly define their performance expectations and articulate what success looks like. Based on my experience, those definitions aren’t always as clear-cut as we’d like them to be,” she said. “As any seasoned contracting officer would say, the answer to which contract type to use is ‘it depends’ — and there’s a good reason for that. Taking a blanket approach across the board doesn’t always deliver the best outcomes.”
Hamm added that much of what’s driving this executive order appears to reflect a fundamental misunderstanding of how government contracting actually works.
“On cost-reimbursement contracts such as cost-plus-fixed-fee, there’s a statutory cap on profit at 10%. Companies don’t strike it rich on cost-reimbursement deals,” he said. “Where companies earn double-digit profits is on fixed-price contracts, as well as time-and-materials and labor-hour contracts. Politically, the real objective behind this executive order seems to be sidelining established government contractors and opening the door to newer, disruptive firms that don’t have cost accounting systems and similar infrastructure. It reshuffles where the financial benefits flow — in this case, to the company’s bottom line rather than to its workers.”
Giddens, on the other hand, said the executive order is introducing something that has been overdue for decades: a higher level of accountability and oversight.
“This EO doesn’t introduce any new tool, new Federal Acquisition Regulation language, or new legislation. What it comes down to is the administration signaling that this is a priority and implementing mechanisms to drive that change,” he said. “It will be fascinating to see the industry’s reaction. Companies will now need to consider the government’s market research phase and articulate how they plan to produce results. How they’ll help the government achieve better outcomes. I think this will lead to a shift in industry behavior.”
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